Buying a home is a dream for everyone. While some people save money to make this dream come true, many cannot save enough.
In such situations, people take a home loan from a bank or a housing finance company to own a house.
When applying for a home loan, most people use it as a single applicant, while some include a co-applicant.
When you apply for a loan with a co-applicant, the principal applicant and the co-applicant are jointly liable for the loan. What is the effect of having a co-applicant on your home loan? What are the pros and cons?
Who can be a co-applicant?
Bank and financial institution guidelines regarding co-applicants have minorly changed. The principal applicant must decide who to include as a co-applicant.
A spouse can become a co-applicant, as can a father-son and father-unmarried daughter. Siblings can also be co-applicants. However, a person below 18 (a minor) cannot be a co-applicant under any circumstances.
Benefits of having a co-applicant:
Increase your chances of getting a loan: Applying for a loan with a co-applicant will increase your chances. The lending bank or company will consider your income and your co-applicants. Due to both incomes, you can get a higher loan amount.
Benefit of Credit Score: Almost all banks and lending institutions check your credit score while granting a home loan.
Even if you do not have a satisfactory credit score, your co-applicant should have a good credit score. This will also increase your chances of getting a loan at a lower interest rate based on the co-applicant’s credit score.
Financial burden reduced by half: Having a co-applicant while taking a home loan does not put a lot of financial burden on you. Sharing the EMI amount reduces the financial burden by half. There is no difficulty in repaying the loan.
Tax Savings: Under Section 80C of the Income Tax Act, home loan applicants and co-applicants are eligible for tax exemption.
Under section 80C, income up to Rs. 1.50 lakh in a financial year can get tax exemption. Besides this, under Section 24 (B), an additional Rs. 2 lakhs deduction is available.
Exemption for female applicants: The benefits are more than usual if you have a female applicant while taking the loan.
Many banks and finance companies give concessions to women, and that discount benefit also applies to you. This can save a lot of money in the long run.
Loan Tenure: If the co-applicant taking the loan with you is a young woman or youth, your loan tenure will be increased, and as a result, your EMI amount will decrease. However, if the loan tenure is increased, the interest on the loan will also be higher.
Disadvantages of having a co-applicant:
Being a home loan co-applicant has some disadvantages as well. If two people take a loan together, they are responsible for repaying it. If you miss paying the home loan EMI, both credit scores will be affected.
Failure to include the right person as a co-applicant may lead to unnecessary consequences. So, think ahead while choosing a co-applicant.